Q&A with Jacques Morris, UK Transition Plan Taskforce
On 8th November 2022, the UK Transition Plan Taskforce (TPT) launched their Disclosure Framework and Implementation Guidance which provides recommendations for financial institutions and corporates on their climate transition plans. Our recent Finance Leaders' Sustainability Barometer highlighted a disparity between sustainability ambitions and the work to make them a reality, so credible and transparent plans are a vital step to closing this gap.
The TPT was launched by HM Treasury in April 2022 to develop a ‘gold standard’ for private sector climate transition plans in the UK. The TPT aim to inform and build on international disclosure standards. The UK Government and the Financial Conduct Authority are actively involved and will draw on the TPT’s outputs to strengthen disclosure requirements across the UK economy. In this blog we present a quick question and answer session we had with Jacques Morris, Team Lead of the TPT Secretariat, ahead of the launch of their framework.
Q. What is the role of a transition plan in achieving an organization’s net zero objectives?
A. Transition plans set out the actionable short-, medium- and long-term steps that will deliver an organization’s net zero objectives. The Transition Plan Taskforce (TPT)’s Disclosure Framework provides clear recommendations to enable financial institutions and corporates to create rigorous transition plans. The TPT’s work will tackle greenwashing by encouraging transparency and reporting around firms’ actions. This will allow stakeholders to assess progress and enable smarter capital allocation that accelerates the transition.
The TPT is recommending a ‘whole of economy approach’, whereby entities consider the levers they have to embed and accelerate the economy-wide transition to net zero, alongside their own decarbonization. UK leadership on transition plans can facilitate innovation and investment and catalyse a stronger, more resilient and prosperous economy.
Q. What do you recognize as key challenges in putting together a transition plan and how does your guidance help overcome this?
A. One key challenge for some organizations is understanding where to start with a transition plan. Helpfully, the TPT has included a whole chapter of its Implementation Guidance to focus on the four key stages of preparing a transition plan, which map to the elements in the Disclosure Framework. These process stages also signpost to transition plan guidance referenced elsewhere.
- Baselining current position – using the foundations of set out by the Task Force on Climate-Related Financial Disclosures (TCFD) to understand the entity’s exposure to climate-related risks and opportunities.
- Setting ambition – setting objectives and priorities to help an entity understand its transition ambition.
- Developing an action plan – translating long-term targets into concrete short and medium-term actions.
- Ensuring accountability for delivery – devising accountability mechanisms to enable delivery, ensuring the transition plan is well governed and progress against it can be monitored.
Q. How would you suggest organizations get started in developing a transition plan?
A. The TPT recommends four key stages for preparing a transition plan, as set out above. The first of these stages is for the entity to baseline its current position, building off the foundations of the TCFD. The TPT recommends four process steps to do this:
- Assess climate-related risks and opportunities to define key priorities and understand the feasibility to inform its overall climate ambition.
- Perform a decarbonization levers assessment to assess what actions, resources and projects are available to enable decarbonization.
- Analyse interdependencies of climate action and the natural environment and stakeholders such as workforce, supply chains, communities or customers.
- Perform an emissions baselining exercise to understand the entity’s emissions profile.
Q. What are the key considerations for finance professionals on transition plans?
A. A transition plan is integral to an entity’s overall strategy. As such, the preparation and delivery of the transition plan require a cross-functional approach, in which the finance function should play a pivotal role. Key takeaways for finance professionals are:
- Get involved with the design and development of the plan, to understand the impact on financial planning.
- Ensure underlying climate-related assumptions are connected to general purpose financial reporting.
- Consider the control environment of transition plan disclosure inputs and engage with the internal audit function, documenting and recording metric methodologies, performing quality control on data inputs (including those from external sources), and assessing adequacy of procedures for internal controls.
- Review the Technical Annex to understand the shifting sustainability reporting landscape and the granularity and specificity of the TPT recommendations compared to those of the TCFD and the IFRS Sustainability Disclosure Standards which are being developed by the International Sustainability Standards Board (ISSB).
Q. How does this guidance complement other guidance on transition plans currently in the market?
A. As mentioned, the ISSB is developing a global baseline for private sector climate reporting, called IFRS Sustainability Disclosure Standards. Along with the UK, many countries are expected to adopt the ISSB’s baseline and build on it. The TPT should be viewed as a national initiative to apply and build on the ISSB’s baseline. The TPT expect global baselines in climate reporting to converge with the TPT framework and guidance over time. We are engaging with the ISSB and others to lay the groundwork for convergence.
The TPT is also aligning with recommendations on transition plans from the Glasgow Financial Alliance for Net Zero (GFANZ), with members of GFANZ participating in all levels of TPT governance. The Disclosure Framework and Implementation Guidance were drafted with GFANZ recommendations in mind. TPT Framework will provide specificity and granularity for the UK context.
Q. What’s next in your plans?
A. The TPT Disclosure Framework and Implementation Guidance is now out for consultation. Alongside the consultation, the TPT is hosting an Online Sandbox for entities to prepare part, or all, of their transition plan using the Disclosure Framework and Implementation Guidance. The Online Sandbox provides a means for these entities to give feedback on the usefulness of the Framework and Guidance in preparing their plan. This feedback may include challenges faced and where additional guidance is needed to meet the Framework recommendations. The TPT will organize an ‘in-person Sandbox’ event in early 2023 for participants of the Online Sandbox.
In 2023, the TPT will focus on finalizing the Disclosure Framework and Implementation Guidance, and will develop sectoral guidance. The TPT will also increase its international engagement with other jurisdictions and standard setters to support global convergence on transition plans.